Business responsibility for its social impacts: moving beyond CSR

Businesses have a responsibility for all their impacts and for preventing human rights harms, whilst ensuring that adequate remedies are available when abuses occur

Later this year, the UK Government will announce its business and human rights strategy for British business, at home and abroad, centred on the concept of corporate human rights due diligence. Photograph: Stephen Shaver/EPA

The age of responsible business is upon us, if not in terms of practice, then certainly in terms of public expectation. The ongoing financial crisis has made it much more difficult for corporations to maintain a business as usual mentality – on issues from executive pay, to tax avoidance and corruption, as well as the externalisation of social and environmental responsibilities through complex business relationships around the world. The coming years will see even greater focus on the triple bottom line (financial, social and environmental) and an expectation that business must always operate within the interests of wider society.

Of course, few businesses have ever claimed to act against the interests of society. But for too long, Corporate Social Responsibility (CSR) has been based largely on the assumption that the business case always aligns with the societal case as long as enough philanthropy is dispensed. The United Nations Guiding Principles on Business and Human Rights, agreed by consensus in 2011, move us significantly beyond this idea.

Governments have now affirmed that all businesses have a direct responsibility for all their impacts and for preventing human rights harms they might cause, whilst ensuring that adequate remedies are available when abuses occur. The OECD, European Union, International Standards Organisation and others have already aligned with the UN principles. Mainstream CSR now needs to be rethought. Later this year, the UK Government will announce its business and human rights strategy for British business, at home and abroad, centred on the concept of corporate human rights due diligence. Direct reference to this approach has already been discussed in terms of British investments into Myanmar (Burma).

So the question is no longer whether a business should behave in a socially responsible manner, but rather how this should be done in practice. Here are some initial thoughts on key issues that require further dialogue and joint action if we are to make faster progress. All of these issues will be topics of this blog and others over the weeks and months ahead:

• The first theme is knowledge: how much should any business be expected to know about the impacts it or its suppliers has on society and the risks it might pose to communities, in particular the most vulnerable? We need to agree on what can reasonably be expected for a specific business in a specific geographic context in terms of the proactive measures (or due diligence) it undertakes. Once it acquires this knowledge the business has to act to reduce risks and prevent, as much as possible, adverse impacts. It needs to use its leverage over the actions of others: other businesses or even, within reason, the actions of governments. If a business behaves responsibly, it should be recognised for the preventative measures it takes. If it is does not undertake adequate due diligence, then it should be seen as reckless or even negligent.

• Multi-stakeholder approaches is the second theme: how businesses, governments, NGOs and trade unions work together to define reasonable expectations of business in particular contexts. Fundamentally, it is the voices of communities themselves that need to be heard. Businesses have for too long conflated business risk with the risks faced by communities and marginalised peoples. Clearly, these do not always coincide. As we have seen from the financial crisis, it is possible for banks to constrain their own lending with little appreciation of the impact on small and medium-sized enterprises and those suffering from the recession.

• One of the biggest problems of traditional CSR is that businesses themselves have defined the focus and limits of their actions. Moving forward, they need to do this in partnership with others in order for their decisions to be seen as legitimate. The Ethical Trading Initiative and the Voluntary Principles on Security and Human Rights are just two examples of this approach. We now need many more - in particular in parts of the world where human rights dilemmas are most severe.

• The next theme is transparency - much more information about a company's financial, social and environmental behaviour should be disclosed and included in public reports. So far, company sustainability reports have often been free standing and read only by a few of the most committed shareholders and investors. This needs to change. The Danish Government already requires all its large companies to report on human rights, climate change and other material issues. Soon there will be Europe-wide proposals for social and environmental reporting - ideally this will increasingly be integrated into companies' main financial reports.

• The need to reform corporate governance in the UK is now commonly understood with, for example, Government plans to give shareholders real powers on limiting excessive executive pay. The UK has continued to stop short of looking seriously at the German model of Supervisory Boards, which give workers and others a direct say on issues such as remuneration, but if we continue to marvel at the model of the John Lewis Partnership, then we need to take such ideas much more seriously. Tax avoidance, an issue bubbling up for several years, is now centre stage and will require a much closer examination of company actions across borders. Both the governance and taxation issues point to a corporate culture that is heavily siloed, where lawyers and accountants are unconnected from issues of wider social impact. This has to change.

• Finally, the need for global approaches is increasingly seen as essential by both British business and NGOs alike. It is too easy to constantly pick only on high street companies, whose brand names resonate with consumers, and who sit at the end of long and complex global supply chains. As the recent revelations about Apple in China have shown, mega-suppliers such as Foxconn have enormous leverage themselves. The UN Guiding Principles place direct responsibility on every company, not just the western brands, and therefore our expectations of Chinese, Brazilian, Russian, Indian and other emerging economy companies must now increase. Whilst it is valid for British NGOs to maintain campaigns against Western companies, this must be balanced with the work that Global Witness and others have done to expose some of the untold stories.

In conclusion, it would be wrong to take the impression from these emerging themes that government is any way let off the hook. Quite the inverse is true. Governments now need to step forward and set very clear expectations of companies registered under their jurisdictions or trading in their territories. Although not perfect, recent legislation in the USA, and also the state of California specifically, has shown some willingness to begin to do this. Our common challenge is to get all governments to do the same.